Milk Pricing Imbalance Prompts Herd Sales

MILANVILLE, Pa. (AP) – Brian Smith needed convincing to enter the barn where he milked dairy cattle for 17 years.

“I haven’t been in here since I got rid of the cows,’’ Smith said as he stepped around an empty bulk milk tank.

He turned on the electrical power, flipped a light switch, stood along a wall and glanced at empty pens as a bleating Holstein calf broke the silence. Cats scurried about, outnumbering livestock in the stable.

Smith, 47, a Wayne County commissioner who operated dairy farms for 27 years, sold his 45 milking cows April 21 in Lancaster County. He is among the latest casualties in the ranks of dairy farmers trampled by a cost-payment imbalance devastating the industry.

“I lost at least $2,000 a month last year,’’ said Smith, whose 123-acre farm is about 16 miles northeast of Honesdale. “Dairy farmers need more money to stay in business. If they don’t, they’ll be gone like me.

“It’s a disaster in every direction.’’

After 11 straight months in 2008 and 2009 when production costs exceeded average milk payments, dairy farmers face spring planting expenses with scant hope of a financial bloom.

“I lost $50,000 to $60,000 in the last 18 months,’’ said Joe Davitt, who milks about 35 cows among a herd of more than 50 cattle on his farm near Waymart.

Davitt worked as a handyman off the farm over the winter to generate income. He will scale back feed-corn planting by one-third, to 20 acres, because of a tight budget. Dairy farmers grow fodder corn to sustain their herds through winters.

“There’s one field that I cannot afford to plant,’’ Davitt said. “I can’t go to the bank and borrow money.’’

Will Keating, who milks about 100 cows at his farm near Mount Cobb, faces a similar bind.

“I’m losing $120 a day just walking into the barn,’’ Keating said.

He has not decided whether to plant his 48 acres of cornfields because of financial difficulty.

Dairy prices advanced in late 2007 and much of 2008, when farmers collected payments averaging close to $20 per 100 pounds of raw milk, an industry standard equivalent to 11.6 gallons. But dairy exports plunged as the international financial crisis worsened later in 2008 and overproduction sent payments to farmers reeling before they bottomed out at a state average of $12.90 in June.

The production cost-payment equation stabilized in October, but it left cashstrapped farmers near desperation.

“A lot of people’s balance sheets are messed up and they might not have any more borrowing capacity,’’ said James Dunn, Ph.D., an agricultural economist at Penn State University. “A lot of these people are teetering now.’’

Jim Doran, who tends a herd of 60 dairy cattle in Hanover Twp. near Wilkes- Barre, plowed money into his farm with family members this year to keep it going.

“I just filed my taxes and there was a minus sign in front of my income,’’ Doran said. “Somebody is making a lot of money between us and the consumer.’’

A gallon of whole milk sold regionally for $3.60 in September 2008, when dairy farmers averaged $20.50 payments per 100 pounds, state Milk Marketing Board data show. In February, a gallon of milk sold for $3.27 regionally, but the average 100- pound payment to farmers was $18.10.

Farmers direct some of their frustration at milk cooperatives, which are membership organizations that purchase, process and market their output in return for membership and service fees.

“DFA takes the brunt because we’re the one they can strike at,’’ said Jerrel Heatwole, a Delaware dairy farmer and chairman of DFA’s northeast board. “It’s easy to stand back and yell ‘fire.’ It’s harder to grab the fire hose and ax and get in there and battle.’’

Although February milk payments were 33 percent higher than year-ago averages, farmers bear the weight of rising costs on top of earlier losses.

“Consider that property taxes are up 15 percent, electricity is up 30 percent and seed corn is up 40 percent,’’ Doran said. “We grow food cheap and we’re getting screwed.’’

Bill Bryant, whose farm is about five miles from Smith’s, gets about seven deliveries of sand annually for bedding for his 90-head dairy herd.

An 8-ton delivery of sand that cost him about $180 three years ago now costs about $260 and his electric bill has doubled over the last five years to about $1,000 a month. Diesel prices have risen 32 percent in the last year.

“People are more discouraged now than they were a year ago,’’ Bryant said.

Down the road from Bryant’s farm, Smith got discouraged as his milk payments dropped by $2 per 100 pounds from January to March and he decided to stop pouring off-farm income into the operation.

His exit tracks a downward trend in the industry. Wayne County has about 80 dairy farms, down from about 175 in 2000, said Ed Pruss, a Penn State Cooperative Extension educator in Honesdale.

Smith still has about 50 heifers, dry cows, calves and steers. He has not sold any equipment and does not rule out an eventual return to dairying.

“There’s no future here, right now,’’ he admitted.

“I watched my family grow up in there,’’ Smith, the father of six children, said as he exited the barn. “I always thought I’d get to the point where my kids could take over. It’s just not going to happen.’’